A 100-seat restaurant with average daily turnover of 2 and average check of $15 opens 365 days a year. Food cost is 38% of revenue and other variable costs is 22% of the revenue. Fixed costs are $220,000 a year.

a. Calculate the restaurant's present annual operating income.

Show your work here Answer

Revenue (220,000+OI)/CM%

Variable costs

Food cost (38% of revenue)

Other VC

Contribution Margin 1-22%= 78%78%

Fixed costs

Operating Income

b. If the owner decides to increase average check to $17 and spend $30,000 more on advertising in order to increase operating income to $250,000 and add $20,000 his own salary. Assuming the variable costs per customer do not change, how many more (or less) customers the restaurant needs to serve now (compared to the original situation)?

Hint:

New average check: $17

Additional advertising: $30,000 (You need to decide if you should add this to the fixed cost or to the variable cost.)

Additional salary: $20,000 (You need to decide if you should add this to the fixed cost or to the variable cost.)

New Operating income wanted: $250,000